Bombay High Court Dismisses ₹29.36 Lakh Arbitration Plea For Failure To Follow Agreed Mediation Process

The Bombay High Court on 29 September held that courts cannot appoint an arbitrator without ensuring compliance with the pre-arbitration procedure agreed upon by the parties.

Justice Amit Borkar dismissed an application filed by Wellgroomed Venture against Dr. Kamat's Hospital under Section 11 of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator to resolve a dispute over alleged maintenance and assessment dues of Rs. 29.36 lakh. The Bench observed:

“...arbitration itself is based upon the consent of the parties. The Court cannot change the procedure which the parties had agreed between themselves. When the Agreement provides that one step has to take place before the next step can be taken, that agreement has to be given proper meaning.”

The dispute arose from a registered Agreement for Sale dated 4 July 2014, under which Wellgroomed Venture agreed to sell Commercial Unit No. 501 in the Hubtown Viva building at Jogeshwari East, Mumbai, to Dr. Kamat's Hospital. The agreement required the hospital to pay its proportionate share of maintenance, assessment charges and other building expenses.

Wellgroomed Venture claimed Rs. 12,63,843 in outstanding maintenance dues and Rs. 16,72,710 in contractual interest calculated at 24% annually, totalling Rs. 29,36,552. It issued a demand notice on 20 August 2019 and sent further communications seeking payment. Although the building's management was transferred to a housing society in June 2021, Wellgroomed Venture claimed that the dues remained unpaid.

On 30 April 2024, Wellgroomed Venture issued a notice warning that the agreement would stand terminated if the hospital failed to meet its demands. It invoked the arbitration clause on 4 July 2024. After receiving no response, it approached the High Court seeking appointment of a sole arbitrator.

It relied on its repeated payment demands and the hospital's failure to respond. Dr. Kamat's Hospital opposed the application, arguing that Clause 50 required the parties to attempt mutual discussion and then mediation before the Maharashtra Chamber of Housing Industry (MCHI). Under Clause 51, the parties could invoke arbitration only if mediation failed.

The hospital also contended that the monetary claims were time-barred and that related proceedings were pending before the Co-operative Court.

Examining Clauses 50 and 51, the Court held that the parties had deliberately placed mediation before arbitration and that the agreed sequence could not be disregarded. The existence of an arbitration clause alone did not entitle a party to seek the appointment of an arbitrator without following the prescribed procedure. It observed:

“However, merely because an arbitration clause is there, every notice invoking arbitration cannot automatically result in appointment of an Arbitrator. The parties have to follow the procedure which they themselves agreed. In the present case, Clause 50 and Clause 51 have to be read together”.

The Bench found no evidence that Wellgroomed Venture had referred the dispute to MCHI or attempted mediation. It distinguished ordinary correspondence between the parties from the contractually mandated mediation process, observing:

“Correspondence between the parties cannot automatically be treated as mediation before MCHI. A demand notice and mediation before MCHI are different things.”

On limitation, the Court clarified that the three-year period under Article 137 of the Limitation Act, 1963, for seeking appointment of an arbitrator was distinct from the limitation period governing the underlying monetary claims. It rejected the contention that the Section 11 application was time-barred merely because Wellgroomed Venture had first demanded payment in 2019. It observed:

“The limitation for the Section 11 Application has to be considered from the point when the right to seek appointment arose and not necessarily from the date when the first monetary demand was made.”

However, the Bench left open the question of whether the underlying monetary claims were time-barred. It also left open the objections concerning the pending Co-operative Court proceedings.

Accordingly, the High Court dismissed the application as premature, directing Wellgroomed Venture to follow the agreed procedure of mutual discussion and, if unsuccessful, mediation before MCHI before seeking arbitration.

It made no order as to costs.

Appearances for petitioner (Wellgroomed Venture): Advocates Manoj P. Mhatre and Shubham Gupta.

Appearances for respondent (Dr. Kamat's Hospital): Advocate Shabnam Indorewala.